subject: Using Accounts Receivable As A Business Tool [print this page] A company can use accounts receivable financing to obtain working capital from a financial institution. This enables the company to use accounts receivables, or invoices as collateral for the loan.Businesses can capitalize on their incoming invoices, during temporary cash flow interruptions, and use them to obtain accounts receivable financing as an alternative to conventional loans. Accounts receivable financing is also referred to as factoring by lending institutions.
When a small business needs working capital to purchase materials and pay pending bills and have operating funds are limited, small business factoring is an alternative lending solution.A factoring company accepts the unpaid invoices of the business getting the small business factoring loan. The advance is repaid by the invoice payments going directly to the factoring institution. Small businesses seeking loans to maintain or grow their operation can receive advance funds by turning over all or a portion of their invoices to a factoring institution in exchange for a accounts receivable loan.Small businesses have used factoring as a financial solution, in a tightening credit environment, as a source of working capital while waiting for invoices to be paid.
Accounts receivable aging is a report issued periodically that outlines receivable balances and is often broken down by customer account and date due. A valuable aid for a company structuring an operating budget is the Accounts receivable Aging Report which monitors the companys receivables. A record of when payments are received by customers and how much is needed to operate the business provided by Accounts Receivable Aging Reports; allowing a company to better plan its cash flow needs.
Debt portfolios for sale offers are made by many financial institutions to investors or alternative financing institutions. The buying and selling of debt portfolios is a common practice between lending institutions. When one companys existing loans are sold to another company, the original loan holder has more capital to make new loans. The buyer of the debt will then collect the remaining balance and interest from the borrower.
